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Individual Savings Accounts (ISAs): the facts

Last Updated: 6 Apr 24 22 min read

The Individual Savings Account (ISA) is a tax exempt savings vehicle for UK resident investors. 

Key Points

  • Investors are not taxable on income received from ISA savings and investments, and no tax is payable on capital gains arising.
  • ISAs can offer an alternative tax-efficient investment strategy for those individuals who can no longer benefit from tax relief on their pensions savings.
  • Subscriptions can be transferred freely between cash, stocks and shares, and innovative finance ISAs.
  • A child can hold two types of Junior ISA – a stocks and shares JISA and a cash JISA – but no more than one of each type throughout their childhood.
  • The government is going to create a "UK ISA" with a £5,000 allowance
  • From 6 April 2024 it is now possible to subscribe to multiple ISAs of the same type with the exception of Lifetime ISA and Junior ISA


ISAs first became available on 6 April 1999 and Junior ISAs on 1 November 2011.

Investors are not taxable on income received from ISA savings and investments, and no tax is payable on capital gains arising (capital losses are disregarded). Investment returns do not need to be declared in tax returns. Also, ISA income is ignored when calculating entitlement to personal allowances for individuals with adjusted net income exceeding £100,000. See our Personal Allowances article.

The exemption from income tax is contained in Sections 694 to 701 Income Tax (Trading and Other Income) Act 2005, and the exemption from Capital Gains Tax (CGT) is in Section 151 Taxation of Chargeable Gains Act 1992. The detailed rules, however, are to be found within the ISA Regulations 1998 (SI 1998 No 1870) and subsequent amendments.

The relative simplicity and longevity of ISAs means that they are a core product in the UK savings market and, in particular, offer an alternative tax-efficient investment strategy for those individuals who can no longer benefit from tax relief on their pensions savings, having contributed up to their combined annual allowance and carry forward facility.

Budget 2014 announced that from 1 July 2014 ISAs were to be reformed into a simpler product, the New ISA (NISA). All existing ISAs became NISAs and account holders benefitted from new flexibility in relation to their accounts, as well as an increased overall subscription limit. NISA savings can be held in cash or stocks and shares in any combination that the saver wishes.

An investor could subscribe to a Cash NISA and a Stocks & Shares NISA in the same year splitting the overall allowance between the two.

The NISA was not a separate scheme. Instead, there remained two types (Cash and Stocks & Shares) and, from 1 July 2014, they operate under amended ISA Regulations.

Now that the NISA changes have bedded in, the remainder of this article will revert to the term ISA (indeed HMRC use the term ISA).

From 6 April 2016 to 5 April 2024, investors could subscribe in each tax year to:

  • One cash ISA

  • One stocks and shares ISA, and

  • One innovative finance ISA, and

  • One lifetime ISA

It was not possible to subscribe to two (or more) cash ISAs, two (or more) stocks and shares ISAs, two (or more) innovative finance ISAs or two (or more) lifetime ISAs in the same tax year.

From 6 April 2024, the government allows subscriptions to multiple ISAs of the same type, with the exception of Lifetime ISA and Junior ISA, within the tax year, removing the limit on subscribing to one ISA of each type per year. All subscriptions must remain within the overall ISA limit of £20,000.

It was announced in Spring Budget 2024 that the government is going to create an additional UK ISA with a £5,000 allowance in addition to the current ISA subscription limits and will provide an opportunity for people to invest in the UK and to support UK companies. There are currently four types of ISA open to adult investors. The proposal will bring that up to five with the intention being to increase investment into UK companies and boost economic growth.

The UK ISA is not available yet and the government have issued a consultation on how it should be defined and implemented.

The government have also proposed that the UK ISA should allow investment into collective investment schemes. Consideration is being given to replicate the approach previously used for PEPs (Personal Equity Plans) which allowed investment into authorised unit trusts or investment trusts if at least 75% of the value of the fund were invested in eligible UK companies. PEPs were the forerunner to ISAs introduced in 1987 as a way to encourage stock market investment. 

There are proposals in the consultation to ensure a new ISA allowance is not open to abuse. These involve restricting or disincentivising holding cash and barring transfers from the UK ISA to another type of ISA.

There is no set timescale for the launch of the UK ISA. 

As announced at Spring Budget 2024, the government is committed to ensuring people have the opportunity to invest in a diverse range of investment types through their ISAs. As previously announced at Autumn Statement 2023 this includes certain fractional share contracts, and the government is working to bring forward legislation by the end of Summer 2024 following detailed engagement with industry and the Financial Conduct Authority (FCA).

Flexible ISA

In the March 2015 budget, the government introduced the concept of a flexible ISA.

Individuals will be able to withdraw and replace money from their cash ISA in-year without it counting towards their annual ISA subscription limit, and the government will change the rules this autumn following technical consultation with ISA providers

ISA manager bulletin 65, published in July 2015, stated that the change would become law in autumn 2015 following discussions with ISA managers and others. Subsequently, HMRC published documentation giving rise to a period of technical consultation, which closed on 8 November 2015. This documentation made it clear that the measure will have effect from 6 April 2016.

On 15 January 2016, HMRC published Flexible ISA guidance notes. In particular, it is noteworthy that this new flexibility extends to cash holdings in non-cash ISAs - a fact which seems to be at odds with the original budget announcement.

Points worthy of note:

  • A flexible ISA is an ISA whose terms and conditions allow the investor to replace cash withdrawn without the replacement counting towards his/her annual subscription limit.

  • Flexibility is optional for ISA managers, and is not available for Junior ISAs.

  • To be eligible to subscribe to an ISA, an investor must be UK resident (unless the overseas Crown employee rules apply). In the case of a flexible ISA replacement subscription, the investor can, however, be non-UK resident.

  • Flexibility can be offered in respect of cash only. It can be offered for cash ISAs and also in respect of any cash held in a stocks and shares or an Innovative Finance ISA (including from the sale of investments).

Cash ISA

Perhaps the easiest way to think of a cash ISA, is just a tax free savings account. And much like savings accounts you have three main options;

  • Instant Access

  • Notice periods

  • Fixed Rate

Qualifying investments for Cash ISAs

Qualifying investments for cash ISAs include:

  • Cash deposited in bank and building society accounts

  • National Savings and Investments products that are specially designed for ISAs (but not other National Savings and Investments products such as the Investment Account, Savings Certificates or Pensioners' Guaranteed Income Bonds)

  • Alternative Finance arrangements, such as Sharia-compliant products

Instant Access Cash ISA

As the name suggests with this type of ISA subscribers can instantly access the money. They can do this with no penalty being applied, the trade-off for this ease of access is that the rates offered tend to be the lowest.

Therefore, these are handy if instant access is likely to required, such as using this for an emergency fund. 

Notice Cash ISA

Unlike instant access with a notice cash ISA, subscribers need to give a certain number of days' notice to withdraw their cash. They may be able to access within the notice period, but may well face a penalty for doing so.

Therefore, these are handy if subscribers can wait until the notice period is over to access their cash, so perhaps not the best for an emergency fund.

Fixed Rate Cash ISA

Typically, these will offer the highest rates in the Cash ISA world, as subscribers are effectively committing to leaving the money invested for a fixed period of time (months or years). If they do then need to access the cash before the fixed rate period has come to an end, they’ll usually have to pay a penalty.

Stocks and Shares ISA

Available as an investment option since the launch of the ISA, Stocks and Shares ISAs as the name implies can invest in a range of different investments other than cash. 

The investments that managers may purchase, make or hold in a stocks and shares ISA are contained here. Included are life insurance policies that satisfy the ISA requirements.

Life insurance policies must meet a number of conditions to qualify and only those specially designed for ISAs can be included. The policies may be the ISA manager’s own policies, or the manager may offer policies from different insurers.

Company shares traded on any market of a recognised stock exchange in the EEA became eligible for inclusion within a stocks and shares ISA from 5 August 2013. Company shares which became newly eligible for ISA inclusion as a result of this change remain eligible for the Enterprise Investment Scheme (EIS), the Venture Capital Trust (VCT) scheme, and Inheritance Tax Business Property Relief (BPR). If an investor sells an investment that currently qualifies for EIS, VCT, or BPR and his/her ISA manager uses the proceeds to purchase a replacement holding of the same shares for investment in an ISA, the effect would be that:

  • for EIS, the sale of the original holding will be a disposal for the purpose of the provisions for withdrawal of EIS Income Tax reliefs. The new holding will qualify for EIS relief only if it is new shares in a qualifying company.

  • for VCT, the sale of the original holding will be a disposal for the purpose of the provisions for the recovery of VCT tax reliefs. The new holding will qualify only for dividend relief and Capital Gains Tax exemptions under the VCT rules.

  • for BPR, there would be two ownership periods, one for the original holding and one for the 'new' holding in the ISA wrapper. Provided the combined ownership period was more than two years, BPR would be available on the replacement holding.

Cash may be held in an 'adult' stocks and shares ISA if the provider allows. Prior to 1 July 2014, cash could only be held for the purpose of investment in qualifying investments. Cash includes cash subscriptions, interest and dividends, and proceeds from disposals of investments that have not yet been reinvested. An investor can now therefore hold cash tax-free within a Stocks and Shares ISA if desired and if the provider allows.

The Lifetime ISA (LISA)

The LISA was introduced on 6 April 2017, so a relative newcomer to the ISA world, and was a replacement for the Help to Buy ISA (although those who had opened a Help to Buy ISA could still subscribe to that, but would not be allowed to subscribe to a LISA). 

This has a subscription limit of £4,000 per tax year. This £4,000 limit counts towards the overall ISA allowance of £20,000 per tax year. Investors can hold cash or stocks and shares in a LISA, or have a combination of both.

In the 2017/18 tax year the government added a bonus of 25% to these contributions each year. From the 2018/19 tax year this bonus has been added monthly. This 25% bonus effectively mirrors the basic rate relief given to a relief at source pension contribution, even though that’s referred to as 20% relief. So, if £800 is paid into a LISA, the government top up will make this £1,000.

A key factor to consider is that the bonus applied to a LISA does not count as an ISA subscription So for working out what is left of someone ISA allowance it’s just a case of taking the LISA subscription (not the bonus from the £20,000 allowance, and that’s what is left for funding into the other three ISA variants.

The key aim of the LISA is to ‘help young people save flexibly for the long-term throughout their lives.

To open a LISA, subscribers have to be aged between 18 and 40, and they cannot make further contributions once they reach age 50.

Money can be withdrawn from the LISA penalty free at any time (after 12 months from starting to save into the account) to purchase a first home worth up to £450,000. This appears to be a more helpful process than the help to buy ISA process as the funds will be available, including the bonus, prior to completion of the purchase. This money is paid to the conveyancer, and if the purchase falls through or doesn’t complete within three months the money must be returned to the LISA manager by the conveyancer.

Those who are terminally ill with a life expectancy of less than 12 months will be able to withdraw the funds including the government bonus penalty free. This process mirrors the serious ill health lump sum rules with a pension, i.e. a medical practitioner will need to provide evidence of the life expectancy.

Thereafter, the only other time money can be withdrawn penalty free is after the age of 60.


Those who are terminally ill with a life expectancy of less than 12 months will be able to withdraw the funds including the Government bonus penalty free.

If funds are accessed early for any other reason there is a penalty of 25%. Additionally, should a LISA be transferred to an ISA (or any other account or financial institution that is not an ISA manager) this could be treated as a chargeable withdrawal.

Help to Buy ISA

It’s no longer possible to open a Help to Buy ISA. For those who already have a Help to Buy ISA, further information is contained here.

Innovative Finance ISA

This type of ISA was launched in 2016 and is effectively peer-to-peer lending in an ISA wrapper (although they can also hold the money as cash). They are classed as high risk investments by the FCA. The FCA tightened up the rules on these in 2019 and now providers can only issue direct offer financial promotions to one of the following classes of retain client;

  • certified “high net worth investors”

  • certified as a “sophisticated investors”

  • self-certified as “sophisticated investors”

  • certified as a “restricted investors”

When money is within the IFISA, this is then used to lend your money to borrowers, they then repay that capital over a set period of time with a set amount of interest added. Effectively the IFISA has given a loan.  As these are lending and receiving cash, it’s important that these are not viewed as Cash ISAs, they are effectively investing in loans.

As subscribers are lending money, the potential rate of return on these loans is likely to be higher than a Cash ISA, much in the same way that a banks rate of lending is usually higher than the rates they will offer on savings accounts.

As with all loans there is clearly a default risk, and as subscribers are the lender they will bear the risk of that default. This can be mitigated by spreading the lending over a portfolio of loans with other lenders to mitigate this.

However, should a default occur and not be recovered then this will affect the return on the capital, and could perhaps lead to all of the investment being lost if the default happens immediately.

Whilst some peer-to-peer platforms may have a contingency fund to help with any defaults, it’s unlikely that this could cover a great number of defaults. For example, if there is an economic event that leads to mass defaults, how much of the loan book would the contingency fund cover?

Another key issue if that IFISAs are not covered by the Financial Services Compensation Scheme (FSCS), so if the IFISA provider goes bust, all of your money could be lost with no potential recompense. 

From 6 April 2024 the government - 

  1. Allow Long-Term Asset Funds to be permitted investments in an Innovative Finance ISA, which does not require access to funds within 30 days.

  2. Allow open-ended property funds with extended notice periods to be permitted investments in an Innovative Finance ISA.



Who can subscribe and subscription limits

From 6 April 2024, the age limit for opening a cash ISA was increased from 16 to 18 and over. This is consistent with the age requirement already in place for opening Stocks and Shares, Innovative Finance and Lifetime ISAs.

Transitional arrangements end at midnight on 5 April 2026 - 

If, at 5 April 2024, an individual is 16 or 17 and does not have an existing cash ISA, they will be eligible to apply for, and subscribe to, a single cash ISA in any tax year until their 18th birthday. 

Where an individual aged 16 or 17 holds an existing cash ISA, they may continue to subscribe to it or transfer it to another cash ISA after 6 April 2024. 

Where an individual aged 16 or 17  has a cash ISA on fixed rate or fixed terms and it ends, maturing funds may be transferred to a new cash ISA, or the existing manager may transfer funds to a new or continuing product where this is provided for in the term and conditions of the existing account.

ISA managers may accept a transfer of an existing cash ISA held by an individual aged 16 or 17, but all current year subscriptions must be transferred, and the original account closed.

An individual aged 16 or 17 with a cash ISA is eligible for additional permitted subscriptions to that ISA, however any current year subscriptions must be transferred in full.

ISA managers can choose whether to offer cash ISAs to individuals who fall within the transitional arrangements.


Where investments held outside an ISA are sold and the proceeds subscribed to an ISA then this constitutes a disposal for capital gains tax purposes.

Strictly, all ISA applications must be made by the investor (see later for JISAs). An ISA manager may however accept an application by someone legally appointed or authorised to act on behalf of the investor if the investor is not able to complete the application form by reason of:

  • mental disorder or incapacity, or

  • physical disability, illness or old age.

Shares can be directly transferred into an ISA if they have been acquired by the investor from a Schedule 3 SAYE option scheme or a Schedule 2 Share Incentive Plan. Shares cannot be directly transferred into an ISA in any other circumstances. The market value of the shares at the date of transfer counts as the amount subscribed to the ISA. The total of the share value and any other cash subscribed must not exceed the subscription limits.

Investors must transfer shares from a Schedule 3 SAYE option scheme into an ISA within 90 days of the exercise of option date.

Investors must transfer shares from a Schedule 2 Share Incentive Plan into an ISA within 90 days after the shares ceased to be subject to the plan.

Parents who give money to their children (aged under 18) to invest in their cash ISA need to be aware that if gifts from a parent produce more than £100 gross income in a tax year, the whole of the income from the gifts is normally taxed as that of the parent (S629 ITTOIA 2005). The child’s gross income includes income from cash ISAs, but excludes income from JISAs.

An investor must be resident in the UK (not the Channel islands or the Isle of Man). A Crown employee serving overseas and their spouse/civil partner may also subscribe. For those who fail to meet the residence criteria then existing ISAs can be retained, but not subscribed to.

If the individual is resident he/she can apply for an ISA and will be able to subscribe to that ISA for the whole of the tax year. If the individual is not resident in a later tax year, he/she can no longer subscribe to the ISA until UK residence is resumed. If the investor has a continuous application in place and has been non resident, there will always be a gap year as the period of non-residence must last for a whole tax year and no subscriptions will be possible for that gap year. If the investor becomes UK resident again at a later date, a fresh ISA application will be required.

Cash subscriptions from the investor’s employer may be accepted where the employer confirms that the payment will be treated as a relevant payment to an employee for the purposes of the PAYE Regulations and a payment of earnings for the purposes of Class 1 NIC.

From July 1 2014, it became possible to save the annual allowance in cash, stocks and shares or any combination of the two. It is possible to have a single account for both cash and stocks and shares investments, but savers may prefer to hold separate accounts for cash and stocks and shares investments.

The following do not count as subscriptions.

  • Additional permitted subscriptions (see below)
  • Flexible ISA replacement subscriptions (see above)

From 6 April 2024, the government allows subscriptions to multiple ISAs of the same type, with the exception of Lifetime ISA and Junior ISA, within the tax year, removing the previous limit on subscribing to one ISA of each type per year. All subscriptions must remain within the overall ISA limit of £20,000. This change is not mandatory, and managers can choose to limit subscriptions to only one ISA held with them in any tax year. Note that 

  • investors with a LISA are still restricted to subscribing to one LISA a year
  • investors with a JISA are still restricted to subscribing to one of each type in a year
  • under 18s affected by the transitional arrangements are not permitted to subscribe to more than one cash ISA in a tax year

From 6 April 2024, the government has removed the requirement for an investor to make a fresh ISA application where an existing ISA account has received no subscription in the previous tax year. This change is not mandatory and, an ISA manager, can choose whether or not to request a new ISA application each subscription year or following a gap in subscriptions.

Subscription limits are as follows:

Overall limit 20,000 20,000

JISA Limits are as follows:

Overall limit 9,000 9,000

Additional Permitted Subscriptions

From 6 April 2015 additional permitted subscriptions, on top of the annual subscription limit are available to the surviving spouse of a deceased ISA holder.

Additional permitted subscriptions are available in respect of deaths on or after 3 December 2014. The deceased and the surviving spouse must have been living together at the date of death. That is, not separated under a court order, under a deed of separation, or in circumstances where the separation was likely to be permanent.

It’s important to remember that the recipient doesn’t inherit the ISA, upon the members death ISAs held will become continuing ISAs. Continuing ISA’s will continue to maintain their income tax and capital gains tax free status until either;

  • the executor closes it

  • the administration of the estate is completed

  • Otherwise, the ISA provider will close the ISA 3 years and 1 day after the owner dies.

Previously an ISA would lose its tax exempt status on death (income tax and/or capital gains tax was payable on the assets held within the ISA from the date of death). However, spouses or civil partners can inherit the ability to use the value of the APS to subscribe in an ISA, they may (or may not) have to encash the inherited investments to use this, and if there have been gains CGT may be payable (although the value when the tax exempt status was lost will be the base cost

Additional permitted subscriptions:

  • are limited to the value of the deceased's ISA at their date of death if the investor died on or before 5 April 2018

  • can be either the value of the deceased’s ISA at their date of death or the point the ISA ceased to be a continuing account of a deceased investor if the investor died on or after 6 April 2018

  • can be made with the manager who held the deceased's ISA or another manager who will accept

  • must be made within specific time limits

  • can be made in cash or inherited non-cash ISA assets

  • are available whether or not the surviving spouse inherited the deceased's ISA assets

  • can be made by non-residents

  • cannot be made to a Junior ISA

  • can be made to a cash, stocks and shares, or an innovative finance ISA

  • can also be made to a Lifetime ISA if the investor is resident in the UK, but will count towards the Lifetime ISA payment limit but not the annual overall ISA additional permitted subscription limit

  • count as previous year subscriptions for all other ISA purpose.


ISA Transfers

From 6 April 2016 subscriptions can be transferred freely between cash, stocks and shares, and innovative finance ISAs.

Prior to 6 April 2024, if the investor wished to transfer savings relating to any current year's payments, then these had to be transferred as a whole. From 6 April 2024, the government allow partial transfers of current year ISA subscriptions between ISA managers.

Any savings relating to payments in earlier years can also be transferred in whole or in part. Not all ISA providers will allow part transfers, so the investor must check this with the provider. There is no change to LISA and JISA transfers, where current year subscriptions may only be transferred in full.

Closing an ISA

The ISA manager may close a particular ISA where the terms and conditions allow. For example, where the balance falls below a particular level.

Under ISA regulations, investments must remain in the beneficial ownership of the investor. However, under the Insolvency Act, a bankrupt’s estate vests in a trustee meaning that ISA investments cease to be in the beneficial ownership of the investor. Accordingly, an ISA manager notified of the bankruptcy of an investor must close it with effect from the date on which the trustee's appointment takes effect (or, in the case of the Official Receiver, the date on which he becomes trustee).

An ISA ceases on the death of the investor, however, under ISA regulations the tax advantages are extended until the earlier of the following - 

  • The completion of the administration of the estate,

  • The day falling on the third anniversary of the death, or

  • The closure of the account within the meaning of regulation 4B(3)(a).
    so that personal representatives and beneficiaries or legatees do not face income tax or capital gains tax on investments retained in an ISA during the administration of a deceased saver's estate.

As mentioned above, the instrument also modifies the additional permitted subscription (APS) available to spouses and civil partners of deceased ISA holders. The value of the APS is now set at the higher of the value of ISA investments held on the date of death, or at the point when the account ceases to be a continuing deceased’s account. 

Where there is a life insurance policy within the ISA, it will pay out on death. Any gain treated as arising as a result of death is exempt from tax.

Where an ISA is found to be invalid (for example, the subscription is invalid) then in certain circumstances the ISA can continue after corrective action, or ‘repair’. Invalid accounts that cannot be repaired must be voided meaning that all income in respect of the invalid subscription is to be taxed and all the invalid subscription and the (taxed) income has to be removed from the ISA. Valid subscriptions from previous (and possibly later) years are unaffected. If the ISA contains an insurance policy, and any of the excess subscription to be removed is assigned to that policy, it must be removed in full. An insurance policy cannot be repaired: it must either all stay in the ISA or all be removed.

Junior ISA (JISA)

A child can hold two types of JISA:

  • a stocks and shares JISA, and

  • a cash JISA.

Unlike 'adult' ISAs where the investor can open and subscribe to new ISAs in each tax year, a child can only hold up to two JISAs (no more than one of each type) throughout their childhood (although between ages 16 and 18 they can hold one of each type of JISA plus an ‘adult’ cash ISA). However, no child is required to hold either type of account. They may have no JISA at all, or only one type of account.

A child cannot hold an innovative finance ISA.

A JISA application can only be made by a person aged 16 or over. Where the child is aged 16 or over, either the child or a person with parental responsibility for the child can apply to open the account. Where the child is under 16 only a person with parental responsibility for the child can apply to open the JISA.

When application is made the child must be under age 18, and not an eligible child for Child Trust Fund purposes.

The account must be held in the name of the child but any person can subscribe to it. Simplified due diligence will apply to the opening of a JISA so full Money Laundering checks are not required on the child or the applicant for the JISA. The person subscribing need not be resident in the UK, nor do they have to be related to the child. It must be made clear to the person subscribing that they are making a gift to the child which cannot be repaid if at a later date the subscriber changes their mind.

The only amounts that can be withdrawn prior to the child's 18th birthday are to meet certain provider management charges and other specific expenses, or where the child is terminally ill. Should the child die before attaining 18 the JISA will close and the investments will become part of the child’s estate. In all circumstances other than death or terminal illness of an account holder, a JISA must run until the child’s 18th birthday.

As with adult ISAs, accounts can be transferred between account managers.

The types of investments that can be held in these accounts broadly mirror the ‘adult’ ISA rules.

Once the child turns 18, any savings in the JISA that are not immediately withdrawn will stay within a tax-free wrapper albeit that the rules specific to JISA will fall away. The ISA manager may continue with the same account number or allocate a new one depending on what suits its systems and processes.

If the child lacks the mental capacity to manage their account when they turn 18 then and application to the Court of Protection/Office of the Public Guardian/Office of Care and Protection (dependant on where the child lives) for a financial deputyship order will need to be made.

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